Tuesday, February 14, 2012

IMF on Malaysia

It's good to read that the International Monetary Fund, whose chief and ex-chief count as Anwar Ibrabim's closest allies, or so some have claimed with some mischief, thinks well of what PM Najib Razak is doing with his country's economy. Not that we Malaysians are hard-up for their thumbs-up, especially since we were the ones who gave them the finger during the 1998 crisis. Still, we must be magnanimous and praise the IMF for a job well done this time.

It's not perfect, but the Malaysian economy seems to be on the right side of growth. Read the IMF's report H E R E.

35 comments:

Anonymous
said...

Rocky!Are you kidding us? Malaysia still in debts of over 450 billions and rising...Ya ! we gave them the finger during Mahakutty's day but our ringgit still till today as weak with our neighbours like Thailand and indonesia...Ya! Mahakutty had to beg our Taj to buy over Mas shares because Bank Negara was going down!His idea to corner the currency rogues??? Hey! the whitemen in IMF will give us the two fingers when Najib goes with his begging bowl to them!IMF MAIN JOB is to wait for us to go bunk .....they will squeeze Jibbly's balls then!

this may sound silly but my old man always ask me to be cautious if something good comes from someone not reknowned for his goodwill. particularly if that someone was caught trying to steal your stuffs years ago and never show to change to good behavior since he was caught back then to the moment he offered u something good

could this be the world famous reverse psychology stuff? i mean from now on, only good stuffs come from all people around just to reverse provoke the government to think every is right in place for a GE and confident of a big win. i expect that Merdeka Survey thing to shoot government rating off the roof in some not distant future and IMF could be starting the ball rolling already

i think we should be selective but open to opinions from susceptible bodies like IMF. yes be saviour in their praise or whatever but never blow that wild off proportion. be cautious.

Just like what they said about Greece - until they realise that Greece was cooking the books on GDP numbers, growth numbers, debt levels.....

So now your boss has no choice but to come up with ingenious schemes to circumvent the external debt limitations. Like using a special vehicle to guarantee housing loans to people with bad credit risk.

In the 60s and 70s, the Philippines was the darling of everybody. In the 80s it went under, and never recovered since. Bolehland is next.

People like Godfather always like to mislead. Our debt level in any way is still conservative. Developed countries like Germany and France are like 80% of GDP. Japan 200%. US n Uk more than 60%. EU Maastricht conservative level is 60%. We're around 52/54 %. Even Singapore has more than 100%. So all of them will be Greece first then all of us.

That's why even PR budget goes for deficit spending. This is a scaremongering argument by unthinking partisan supporter.

Ps. Argument like this is always censored by TMI. TMI is just rubbish. Proclaim to believe in freedom of speech but always censor contrarion views.

Ellese, ukur lah baju ikut badan sendiri. Why compare with so many advanced countries where even PIGS (Portugal, Ireland, Greece, Spain) are suffering from years of deficit spending ?

I have a friend in a rating agency in Singapore. There message is clear to MoF - if you continue down the path of increased deficit spending, we will put you on negative watch with possible downgrade. Why do you think MoF now has to come up with ingenious schemes to raid the EPF and KWAP ?

A sure sign of bad financial governance is on capital flight. How many hundreds of billions have left the country, never to return ? The IMF is being kind because they said the same thing about Greece and Italy before these countries went to the dogs.

Get ready your begging bowl, Najib....and will the fake Godfather give him the white cane ?

rocky bro , normal lah first they give you a pat on the back , they wait to srew you with another report closer to election for their barua anwar to parade on his election rounds....... be care ful.. once bittem twice shy.

“Cautiously optimistic” would have been the initial catchphrase while “cause for concern” would dovetail in its wake after a closer perusal of the full report here:

http://www.imf.org/external/pubs/ft/scr/2012/cr1243.pdf

for beneath the halcyon outlook, there are storm clouds forming scattered though they maybe. Moreover, missed opportunities in the past may still come back to haunt the present. More on this later but first, a general microscopic analysis reveals the following:

a. high level of household indebtedness (almost 80%) which is above the global median and emplaces us uncomfortably in the august company of Spain, Ireland and the ROC with only the UK and the Us above us. And we know how household and private sector overleveraging led to the US implosion in 2008, don’t we?

b. if we look at Industrial Production and Retail Sales, one would note that the two tango together. In other words, RS trends IP perfectly (see chart on page 4). Implication; if IP falls further, a key driver of the economy i.e consumption would go belly-up and RS would follow suit. Not good at all.

c. a perusal of the snapshot in the Executive Summary you linked is not invigorating either in certain areas. National savings has declined since 2007 indicative of either inflation’s effects on wages wherein higher cost of living crimped savings or a shift to consumption induced by availability of easy credit and disincentives to savings. If this continues, our addiction for whimsical portfolio inflows and foreign lending would increase exponentially in future

d. the general gross debt has increased marginally since Sleepwalkers irresponsible spendthrift days in 2008 (from 42.7 (2007) to 55.4B in 2009 to 56.6(2011) particularly caused by spiralling fuel price impact on the subsidy structure. Now that trend is pretty much locked in as I don’t see fuel trending downwards given the Iran-US geopolitical tensions which means the government must either do the unpalatable like jettisoning subsidies altogether save for basic food items (Indonesia is proposing that for fuel, so why cant we), somehow enhance revenue collection based on the current rickety tax structure or introduce the GST. I would go for a combination of the first and third options which would lead to budget surpluses and a broader and systematic taxation base. Such cuts would provide more leeway for public spending as a countercyclical measure in the event of a downturn with fiscal measures aimed at “at supporting low˗income households and in areas with high multipliers, and could be augmented with guarantees and credit lines to small and medium enterprises to support employment and incomes.” (as suggested in column 26) Finally, the extent of the subsidy burden is also discernible in the consolidated public sector overall balance and the Federal government’s overall balance figures, both of which are running at deficits since 2008 and that should be warning enough. Additionally, our addiction on oil revenues is obvious when you look at the “Non-Oil Primary Balance” figures

e. A lot of people are happy that our debt to GDP is still a manageable 53% compared to others. But when it comes to debt, one can never start parsing or quibbling about its size especially when its lifeline is deficit spending. If one looks at the detailed report key points of concern would be this:

1) Given the projected slowdown in growth and the relatively high public debt, scope for discretionary fiscal support appears limited. (IMF conclusions)

Meaning= we would have less leeway to stimulate the economy through public spending when the economy tanks as private sector investment and consumption tails off.

2)The bounds test in the full report (under Annex 1 here): http://www.imf.org/external/pubs/ft/scr/2012/cr1243.pdfhas this to say : “ For instance, a decline in real GDP growth of about 1½ percentage point relative to the baseline would increase the debt to GDP ratio to above 70 percent in 2016”

while that is just a postulated scenario, it is the ultimate nightmare come real. That is why it is incumbent that we make every effort to rein in the debt to at least 2007 levels as the IMF itself suggests here

'The staff’s medium˗term illustrative reform scenario envisages a reduction in federal government debt to the pre˗crisis level of 42 percent of GDP as a benchmark.

(Please look this up under column 37 page 17 of the full report as well as study the charts)

It is clear then our debt to GDP ratio is becoming, and I stress “becoming” ,unsustainable which is why I have been consistently suggesting ‘unpopulist’ measures like the GST, a slash in subsidies, freezing operational expenditure and other such initiatives outlined in the KJ-RR thread.

f. The Euro crisis: Consolidated claims from Euro amount to 40% (see the Box 2). Fortunately 80% of it is from the UK or issue by subsidiaries backed by local deposits. So on that score, we are pretty safe. But then again, Moody’s has had UK on a negative ratings watch and UK bank exposure to Euro amounts to more than 1Trillion pounds:

“The U.K. has a large banking sector in relation to its economy and a large part of that banking sector is exposed to the euro area, so any meltdown may be potentially cataclysmic,” said Grant Lewis, an economist at Daiwa Capital Europe Ltd. in London and a former official at the U.K. Treasury. “The government’s clearly very nervous about ending up having to pour more capital into these banks.”http://www.bloomberg.com/news/2012-02-06/britain-prepares-for-worst-as-eu-struggles-to-end-euro-crisis.html

as for the repurcusions for Malaysia, that is best left to your imagination. A hint is alluded to by the external financing portion in Box 1 (page 12 of the full report). An aggravated scenario of Box 1 is the likely outcome in my opinion if Euro unravels.

g. Our Gini remains above the ASEAN median meaning that income inequality remains an intractable concern (column 30 page 16 + chart).Hence, my earlier proposal of a wealth tax on the filthy chingkie robber barons as a redistributive mechanism is worth considering. Alternatively, a one off retrospective windfall tax on filthy Chingkie wealth as Russia proposes with their own robber barons or as the Uk once did should be looked into.

“Putin’s one-time windfall tax appears to be based on the U.K. approach, says Morgan Stanley. In 1997, the U.K. imposed a one-time payment on the owners of assets acquired during privatizations in the 1980s. The tax was 23 percent of the difference between the purchase price and the average net profit during the first four years following privatization, multiplied by the factor of 9.3. This resulted in an extra $8 billion for the British crown, according to Morgan Stanley” http://www.financialsense.com/node/7608

In addition, an exit tax on foreign labour financial repatriations, on Malaysians moving investments funds abroad as well as on Malaysians leaving the country for good should be initiated. No doubt these taxes would incur implementation costs but that would be offset by the profits.

The proceeds from any tax should be equitably distributed to the natives and that will help the Gini enormously.

h. One final observation is regarding the need for reform, investment in education, etc is much in line with what I had proposed elsewhere:

“Towards this end, reforms envisage improvements in governance and inclusiveness, promoting catalytic investment projects, focusing on high value˗added manufacturing and services sectors, as well as broader economic reforms to raise incomes of the poorest households and reform public finances to ensure their sustainability and remove distortions” (this point is repeated numerous times in different guises throughout the full report)

Public finance reform again goes back to prudent expenditure controls, tax reform, debt reduction and subsidy removal. The inflationary effects of the last can alleviated by a one off equitable salary increase for civil servants (which would mean a RM3 billion injective stimulus) and a RM 900 minimum wage structure for the private sector. All future increments in both sectors should be linked to productivity gains.

About that 3 billion wage stimulus, I suggest the tradeoff be the culling of programs like NS, funding for vernacular and mission schools, cutting operational expenditure and restructuring payments to the IPPs. Despite all that there are several sweet spots for the Malaysian economy if you read the complete report with regard to the resilience of local banks, NPLs etc (look at columns 23 and 24)

Space constraints deny me the latitude to delve into the structural reforms that Malaysia need to initiate to further consolidate her prosperity suffice to say that the full IMF report does contain issues of concern that need addressing for to ignore them would be placing national interests at peril.In any case, Israel and Iran may well nuke each other to smithereens and put us all under a nuclear cloud and everything else would just be a dot in the larger scheme of thngs…hahahahaha

Maybe Malaysians lots are all senang sangat folks who never appreciates the stability and ample opportunities. Perhaps some sober reflections, tolong menolong - all for one one for all, would be good rather than selfish greed.

Try mirroring against our neighbours.They are coming here to work some of them.

In the future, if we are not careful, our men may go over to our giant neighbours to work, once they grow as strong and rich as China in view of the ample land resources. Does not our entertainment media has been currently swooned over by their movies/actress and singers presently?

You are really bodoh sombong. Main task of an economic policy must be to generate growth for people's well being. Anwars stupid 98 proposed policy to shrink economy is pure stupidity by any standard today. In this course many countries go for deficit spending.

Question is what's an unacceptable level. I'm not saying we must continue all the time deficit spending. But the scare mongering argument by LGE saying we're bankcrupt coz of 2012 budget is pure lie and stupid. I repeat, that's why PR proposed a deficit budget coz after ukur Di Baju sendiri, we are still ok. But suddenly to argue otherwise to me is sheer hypocrisy. So don't be conned by GE.

Another ridiculous argument. Look at Japan 200% debt with rating of AA-..so your whole arguments falls.it doesn't say anything. Not all developed countries with higher debt ratio than us has AAA rating. Gotcha.

See, folks - the warrior guy can write sensibly when it comes to economic and financial matters.

Not that I agree with all of his suggestions.

The "wealth tax" is a bad idea. Full stop. Equally reprehensible is the racial profiling implied in deciding who to levy the tax on. How about, say, the alleged "ghosts" in Johor and those who park their "black monies" in offshore tax havens?

The GST is something that should have been implemented long ago, if we had a federal government focussed squarely on long-term economic benefits and not on short-term political expediency!

Ditto the cavalier disregard of the need to increase productivity across the board and steadily decrease the need for foreign unskilled labour.

I have always maintained that a "10-10-10" formula, i.e. 10% corporate tax rate, 10% top income tax rate, 10% GST, would work wonders for the Malaysian economy.

Lim Guan Eng do not get the support of IMF. Only the Economist will give him all the praises he needed.

IMF gave good comments on Malaysia cos they thought Dr Anwar Ibrahim was the Prime Minister of Malaysia. See how impatient IMF in wanting to have Dr Anwar Ibrahim as PM of Malaysia. And only Dr Anwar Ibrahim will get such support from IMF.